DTIC ADA406382: Semiannual Report to the Congress (October 1, 2000 - March 31, 2001)

SEMIANNUAL REPORT TO THE CONGRESS
OCTOBER 1, 2000 - MARCH 31, 2001
OFFICE OF INSPECTOR GENERAL
NATIONAL ENDOWMENT FOR THE ARTS

REPORT DOCUMENTATION PAGE

Form Approved
OMB No. 074-0188

Public reporting burden for this collection of information is estimated to average 1 hour per response, including the time for reviewing instructions, searching existing data sources, gathering and maintaining the data
needed, and completing and reviewing this collection of information. Send comments regarding this burden estimate or any other aspect of this collection of information, including suggestions for reducing this burden to
Washington Headquarters Services, Directorate for Information Operations and Reports, 1 21 5 Jefferson Davis Highway, Suite 1204, Arlington, VA 22202-4302, and to the Office of Management and Budget, Paperwork
Reduction Project (0704-0188), Washington, DC 20503

1 . AGENCY USE ONLY (Leave 2. REPORT DATE 3. REPORT TYPE AND DATES COVERED

blank) 4/30/2001 Report 4/30/2001

4. TITLE AND SUBTITLE

Semiannual Report to the Congress (October 1, 2000 - March
31, 2001)

6. AUTHOR(S)

Shaw, Daniel

7. PERFORMING ORGANIZATION NAME(S) AND ADDRESS(ES)

Office of Inspector General

8. PERFORMING ORGANIZATION
REPORT NUMBER

9. SPONSORING / MONITORING AGENCY NAME(S) AND ADDRESS(ES)

IATAC

10. SPONSORING / MONITORING
AGENCY REPORT NUMBER

3190 Fairview Park Drive
Falls Church, VA 22042

12a. DISTRIBUTION / AVAILABILITY STATEMENT

Approved fo rpublic release; Distribution unlimited

12b. DISTRIBUTION CODE

13. ABSTRACT (Maximum 200 Words)

The Inspector General Act of 1978 (Public Law 95-452), as amended, calls for the
preparation of

semiannual reports to the Congress summarizing the activities of my office for the six-
month periods

ending each March 31 and September 30. I am pleased to enclose the report for the period
from

October 1, 2000 to March 31, 2001.

14. SUBJECT TERMS

IATAC Collection, report

15. NUMBER OF PAGES

17. SECURITY CLASSIFICATION 18. SECURITY CLASSIFICATION 19. SECURITY CLASSIFICATION
OF REPORT OF THIS PAGE OF ABSTRACT

UNCLASSIFIED UNCLASSIFIED UNCLASSIFIED

16. PRICE CODE

20. LIMITATION OF ABSTRACT

UNLIMITED

NSN 7540-01-280-5500

Standard Form 298 (Rev. 2-89)

Prescribed by ANSI Std. Z39-18
298-102

April 30, 2001

MEMORANDUM

TO: William Ivey

Chairman

FROM: Daniel Shaw

Inspector General

SUBJECT : Semiannual Report to the Congress: October 1 , 2000 - March 31 , 2001

The Inspector General Act of 1 978 (Public Law 95-452), as amended, calls for the preparation of
semiannual reports to the Congress summarizing the activities of my office for the six-month periods
ending each March 31 and September 30. I am pleased to enclose the report for the period from
October 1 , 2000 to March 31 , 2001 .

The Inspector General’s report covers audits, investigations and other reviews conducted by the
Office of Inspector General (OIG), and indicates the status of management decisions whether to
implement or not to implement recommendations made by the OIG. The President’s Council on
Integrity and Efficiency developed the reporting formats for Tables I and II to ensure consistent
presentation by the Federal agencies. The tables provide only summary totals and do not include a
breakdown by auditee. An attachment to this memorandum, which is not part of the report, provides
additional detail for Table I.

The Act requires that you transmit the report to the appropriate committees of the Congress within 30
days of receipt, together with any comments you may wish to make. Comments that you might offer
should be included in your "Report on Final Action," a management report that is required to be
submitted along with the Inspector General’s report. We will work closely with your staff to assist in
the preparation of the management report. The due date for submission of both reports is May 31 ,
2001.

I appreciate the continuing support we have received from you and your managers throughout the
Agency. Working together, I believe we have taken positive steps to improve Agency programs and
operations. We look forward to continuing these efforts.

Attachment

TABLE OF CONTENTS

PAGE

NEA PROGRAMS AND OPERATIONS 1

OIG RESPONSIBILITIES AND RESOURCES 1

SUMMARY OF WORK COMPLETED BY THE OIG 2

Audits/Reviews
Audit Resolution

Investigations 2

Indirect Cost Rate Evaluations 2

Review of Legislation, Rules, Regulations and Other Issuances 3

Technical Assistance 3

Web Site

Other Activities 3

SECTIONS OF REPORT 4

SECTION 1 - Significant Problems, Abuses and Deficiencies 4

SECTION 2 - Recommendations for Corrective Action 4

SECTION 3 - Recommendations in Previous Reports on Which

Corrective Action Has Not Been Implemented 4

SECTION 4 - Matters Referred to Prosecuting Authorities 4

SECTION 5 - Denials of Access to Records 4

SECTION 6 - Listing of Reports Issued 5

SECTION 7 - Listing of Particularly Significant Reports 6

SECTION 8 - Statistical Tables Showing Total Number of Audit Reports

and the Dollar Value of Questioned Costs 6

SECTION 9 - Statistical Tables Showing Total Number of Audit Reports
and the Dollar Value of Recommendations that Funds be
Put to Better Use by Management 6

SECTION 10 - Audit Reports Issued Before the Commencement of the Reporting
Period for Which No Management Decision Has Been Made by
the End of the Reporting Period 6

TABLE OF CONTENTS

PAGE

SECTION 1 1 - Significant Revised Management Decisions Made During the Period 6

SECTION 12 - Significant Management Decisions With Which the Inspector

General Disagrees 6

TABLE I - Inspector General Issued Reports With Questioned Costs 7

TABLE II - Inspector General Issued Reports With Recommendations That Funds

Be Put To Better Use 8

Definitions of Terms Used Appendix A

NEA PROGRAMS AND OPERATIONS

Since its founding by the U.S. Congress in 1965, the National Endowment for the Arts (NEA) has
offered assistance to a wide range of non-profit organizations that carry out arts programming. The
NEA funds exemplary projects in all the artistic disciplines. Grants are awarded to arts, educational,
and community organizations for specific projects rather than for general operating or seasonal
support. Most NEA grants must be matched by non-federal sources at least one-to-one. During FY
2000, NEA operated on a budget of approximately $98 million and employed a staff of about 155.
NEA’s budget for FY 2001 is $104 million.

OIG RESPONSIBILITIES AND RESOURCES

On October 18, 1988, the President signed Public Law 100-504, the Inspector General Act
Amendments of 1988. This law amended the Inspector General Act of 1978, Public Law 95452, and
required the establishment of independent Offices of Inspector General (OIG) at several designated
Federal entities and establishments, including the National Endowment for the Arts (NEA). The
Inspector General is appointed by and serves under the general supervision of the NEA's Chairman.
The mission of the OIG is to:

- Conduct and supervise independent and objective audits and investigations relating to
NEA programs and operations;

- Promote economy, effectiveness and efficiency within the NEA;

- Prevent and detect fraud, waste and abuse in NEA programs and operations;

- Review and make recommendations regarding existing and proposed legislation and
regulations relating to NEA programs and operations; and

- Keep the NEA Chairman and the Congress fully and currently informed of problems in
agency programs and operations.

This semiannual report summarizes the OIG's major activities, initiatives and results for the six-month
period ending March 31 , 2001 . During part of this period, the OIG consisted of four persons - three
auditors and one program analyst. Plowever, with the retirement of the former Inspector General at
the beginning of 2001 , the OIG has been one auditor short. An announcement to fill the vacant
auditor’s position has been advertised. There is no investigator on the staff. In order to provide a
reactive investigative capability, we have signed a Memorandum of Understanding with the Inspector
General of the General Services Administration (GSA) whereby the GSA's OIG agrees to provide
investigative coverage for us on a reimbursable basis as needed. (No investigative coverage from
GSA was needed during the period.) We have also signed a Memorandum of Understanding with
NEA's Office of General Counsel (OGC) that details procedures to be used for providing the OIG with
legal services. An OGC staff member has been assigned to provide such services on an as-needed
basis.

1

SUMMARY OF WORK COMPLETED BY THE OIG

To meet our responsibilities, the OIG conducted the following audits, reviews, investigations and
other activities during this reporting period.

Audits/Reviews

During the six-month period ending March 31 , 2001 , the OIG issued 1 7 review reports. Ten of the
reports were based on reviews performed by OIG personnel; seven reports set forth the results of
OIG desk reviews of audit reports and other materials related to grantee organizations that were
required to have audits performed by independent auditors. Our reports contained a total of four
recommendations concerning financial management issues at the grantee organizations.

Audit Resolution

At the beginning of the six-month period, there was one report awaiting a management decision to
allow or disallow questioned costs. During the period, one new report identified questioned costs of
$25,181 with the amounts of potential refunds to be identified during the audit followup process.

A management decision was made on one of the open reports to allow $309,174 in questioned costs
and not to seek a refund of $68,896. At the end of the period, there remained one report outstanding
with questioned costs of $25,181 and potential refunds, which are to be identified during the audit
followup process. (See Table I for details.)

Investigations

Two new allegation cases were opened during the recent six-month period. One of the new cases
has been closed following referral to other federal investigative authorities while the other case is
undergoing preliminary review. In addition, one of the two open cases carried over from the previous
period is in abeyance pending the resolution of a related lawsuit while the other open case was
closed following a preliminary review which determined that the evidence did not warrant further
investigation. No criminal investigations were performed during the period.

Indirect Cost Rate Evaluations

Indirect costs are incurred for common or joint objectives, which cannot be readily and specifically
identified with a particular project or activity. The costs of operating and maintaining facilities,
depreciation or use allowances, and administrative salaries and supplies are typical examples of
costs that nonprofit organizations usually consider to be indirect.

Indirect cost rates are established by agreement between a non -Federal organization and a Federal
agency (usually the agency that furnishes the preponderance of Federal funding) that acts on behalf
of all Federal agencies in approving rates with the organization. During this period, the OIG
evaluated four indirect cost rate proposals submitted by NEA grantee organizations.

2

Review of Legislation, Rules, Regulations and Other Issuances

The OIG is required to review and comment on proposed legislation and regulations for their potential
impact on the agency and its operations. During this reporting period, the OIG provided analysis and
written commentary on Agency Administrative Directives and NEA publications.

Technical Assistance

The OIG provided technical assistance to numerous NEA grantee organizations and their
independent auditors. Our efforts included, for example, clarifying and interpreting the audit
requirements of OMB Circular A-1 33, “Audits of States, Local Governments, and Non-Profit
Organizations," explaining alternative methods of accounting for indirect costs, and advising some of
the first-time and smaller organizations on implementing practical accounting systems and internal
controls sufficient to assure compliance with their grant agreements.

The OIG also assisted Agency staff with technical issues related to auditing and accounting. For
example, we evaluated the nature and extent of corrective actions taken in response to audit
recommendations and advised the Agency’s Audit Followup Official as to whether or not the desired
results were achieved.

Web Site

The OIG maintains an Internet presence (www.arts.endow.gov/learn/OIG/Contents.html) to assist
and inform NEA grantees and Agency employees, as well. The site includes the Inspectors General
Vision Statement, our two Financial Management Guides, past Semiannual Reports to the Congress,
the OIG Strategic Plan, information about contacting OIG staff, how to report wrongful acts,
information about alternative methods of funding, and answers to frequently asked questions. The
OIG also advised the Agency on improvements that should be made to the Agency’s web site privacy
policy.

Other Activities

During this period, the OIG took part in the activities of the Executive Council on Integrity and
Efficiency (ECIE), allocated resources for responding to requests for information from the Congress
and other agencies, and continued to participate in an advisory capacity in the agency's
implementation of the Government Performance and Results Act (GPRA).

3

SECTIONS OF REPORT

The following sections of this report discuss the twelve areas specifically required to be included
according to Section 5(a) of the Act. Table I identifies Inspector General issued reports with
questioned costs and Table II shows that there were no Inspector General issued reports with
recommendations that funds be put to better use.

SECTION 1 - Significant Problems, Abuses
and Deficiencies

Audits and other reviews conducted by OIG
personnel during the current and prior
periods have disclosed a few instances of
deficient financial management practices in
some organizations that received NEA
grants. Among these were:

Reported grant project costs did not
agree with the accounting records, i.e.,
financial status reports were not
prepared directly from the general
ledger or subsidiary ledgers or from
worksheets reconciled to the accounts;

Personnel costs charged to grant
projects were not supported by
adequate documentation, i.e.,
personnel activity reports were not
maintained to support allocations of
personnel costs to NEA projects;

The amount allocated to grant projects
for common (indirect) costs which
benefited all projects and activities of
the organization was not supported by
adequate documentation; and

Grantees needed to improve internal
controls, such as ensuring a proper
separation of duties to safeguard
resources and including procedures for
comparing actual costs with the budget.

SECTION 2 - Recommendations for
Corrective Action

To assist our grantees in correcting or
avoiding the deficiencies identified above, the
OIG has prepared two "Financial
Management Guides," one for non-profit
organizations and the other for state and
local governments. The guides are not
offered as complete manuals of procedures;
rather, they are intended to provide practical
information on what is expected from grantee
organizations in terms offiscal accountability.
Copies of the guides are routinely distributed
as new grants are awarded.

The guides discuss accountability standards
in the areas of financial management,
internal controls, audit and reporting. The
guides also contain sections on unallowable
costs and shortcomings to avoid. In addition,
the guides include short lists of useful
references and some sample documentation
forms.

SECTION 3 - Recommendations in
Previous Reports on Which Corrective
Action Has Not Been Implemented

There were no recommendations in previous
reports on which corrective action has not
been implemented.

SECTION 4 - Matters Referred to
Prosecuting Authorities

No matters were referred to prosecuting
authorities during this reporting period.

SECTION 5 - Denials of Access to Records

4

No denials of access to records occurred
during this reporting period.

SECTION 6 - Listing of Reports Issued

REPORT DATE OF

NUMBER TITLE REPORT

Cognizant Audit Agency Review Reports

OAA-01-01 National Public Radio, Inc . 10/04/00

OAA-01-02 State of Michigan - Department of Consumer and Industry Services . 11/15/00

OAA-01-03 State of New York . 02/01/01

OAA-01-04 Western States Arts Federation . 02/01/01

OAA-01-05 Mid-America Arts Alliance . 02/05/01

OAA-01-06 Boston Symphony Orchestra . 02/09/01

OAA-01-07 District of Columbia Commission on the Arts and Humanities . 02/15/01

Other Reports

MR-01 -01 High 5 Tickets to the Arts . 10/06/00

MR-01-02 Aunt Lute Foundation . 10/12/00

MR-01 -03 Armenian Film Foundation . 10/17/00

MR-01-04 Bay Area Video Coalition, Inc . 11/17/00

MR-01-05 Ballet Concierto de Puerto Rico . 11/27/00

MR-01-06 Metropolitan Arts Council . 01/10/01

MR-01 -07 Centro Cultural Aztlan, Inc . 02/06/01

MR-01-08 Rapid City Fine Arts Council, Inc . 03/01/01

MR-01-09 Film Arts Foundation . 03/21/01

Match Review of Closed Grants Where Total Outlays Reported on Financial Status Reports Were
R-01-01 Identical to the Amounts Shown on the Grant Budgets . 12/19/00

TOTAL REPORTS -17

5

SECTION 7 - Listing of Particularly
Significant Reports

There were no particularly significant reports
during the reporting period.

SECTION 8 - Statistical Tables Showing
Total Number of Audit Reports and the
Dollar Value of Questioned Costs

Table I of this report presents the statistical
information showing the total number of audit
reports and the total dollar value of
questioned costs.

SECTION 9 - Statistical Tables Showing
Total Number of Audit Reports and the
Dollar Value of Recommendations that
Funds be Put to Better Use by
Management

As shown on Table II, there were no audit
reports with recommendations that funds be
put to better use by management.

SECTION 10 - Audit Reports Issued
Before the Commencement of the
Reporting Period for Which No
Management Decision Has Been Made by
the End of the Reporting Period

There were no audit reports issued before
the commencement of the reporting period
for which no management decision has
been made by the end of the reporting
period.

SECTION 1 1 - Significant Revised
Management Decisions Made During the
Period

No significant revised management
decisions were made during the reporting
period.

SECTION 12 - Significant Management
Decisions With Which the Inspector
General Disagrees

There were no significant management
decisions that the Inspector General
disagreed with during the reporting period.

6

TABLE I

INSPECTOR GENERAL ISSUED REPORTS WITH QUESTIONED COSTS

NUMBER

QUESTIONED

COSTS

UNSUPPORTED

COSTS

POTENTIAL

REFUNDS i

A. For which no management decision

has been made by the commencement

of the reporting period

1

309.174

(309.1741

68.896

B. Which were issued during the reporting

period

1

25,181

(25,1811

0

Subtotals (A + B)

2

334,355

(334,3551

68,896

C. For which a management decision was

made during the reporting period

1

309.174

(309.1741

68.896

(i) dollar value of disallowed costs

0

0

(01

0

(ii) dollar value of costs not

1

309.174

(309.1741

68.896

disallowed

D. For which no management decision has
been made by the end of the reporting

period

1

25,181

(25,1811

0

Reports for which no management

decision was made within six months of

issuance

0

0

_ (01

0

1/ The potential refund amount usually will not equal the questioned costs amount because matching requirements must
be considered and the grantee may be either under or over matched. In addition, historically, the potential refund
generally is reduced significantly as a result of the audit followup process, which includes examination of
documentation submitted by the grantee.

7

TABLE II

INSPECTOR GENERAL ISSUED REPORTS

WITH RECOMMENDATIONS THAT FUNDS BE PUT TO BETTER USE

A. For which no management decision has been
made by the commencement of the reporting
period

B. Which were issued during the reporting period
Subtotals (A + B)

C. For which a management decision was made
during the reporting period

(i) dollar value of recommendations
that were agreed to by management

- based on proposed management action

- based on proposed legislative action

(ii) dollar value of recommendations

that were not agreed to by management

D. For which no management decision has been
made by the end of the reporting period

Reports for which no management decision was
made within six months of issuance

DOLLAR

NUMBER VALUE

0

0

0

0

0

0

0

0

0

0

0

0

0

0

8

APPENDIX A

DEFINITIONS OF TERMS USED

The following definitions apply to terms used in reporting audit statistics:

Questioned Cost

Unsupported Cost

Disallowed Cost

Funds Be Put To Better Use

Management Decision

Final Action

A cost which the Office of Inspector General (OIG) questioned
because of alleged non-compliance with a provision of a law,
regulation, contract, or other agreement or document governing
the expenditure of funds; such cost is not supported by
adequate documentation; or the expenditure of funds for the
intended purpose is unnecessary or unreasonable.

A cost which the OIG questioned because the cost was not
supported by adequate documentation at the time of the audit.

A questioned cost that management, in a management decision,
has sustained or agreed should not be charged to the NEA.

A recommendation made by the OIG that funds could be used
more efficiently if management took actions to implement and
complete the recommendation.

Management's evaluation of the findings and recommendations
included in the audit report and the issuance of a final decision
by management concerning its response to such findings and
recommendations, including actions concluded to be necessary.
Interim decisions and actions are not considered final
management decisions for the purpose of the tables in this
report.

The completion of all management actions that are described in
a management decision with respect to audit findings and
recommendations. If management concluded that no actions
were necessary, final action occurs when a management
decision is issued.